5. Yields Flashcards
(19 cards)
What is a yield?
A measure of return, expressed as a percentage of capital invested
How do you calculate a yield?
What are the current prime yields?
What is a “Years Purchase” and how is it calculated?
Calculated by dividing 100 by the yield percentage.
If a property is valued at £200,000 and generates a rental income of £50,000 per year, the yield is 50,000/200,000 = 25%.
Therefore, the YP is 100/25 = 4 (years of rent required to repay its purchase of £100,000)
If the YP is 4, what is the yield?
100/4 = 25%
If the yiled is 25%, what is the YP
100/25 = 4 (years)
Risk is the main factor when determining a yield, what can impact risk?
- prospect of rental growth
- Quality of location
- Quality of tentant
- Use of property
- Lease terms
- Voids (risk?)
- Security and regularity of income
- Liquidity (ease of sale)
A return if the term used to describe the performance of a property. How can you find the IRR?
Initial rate of return - Use a DCF
What does All growth implicit refer to?
The yield adopted assumes many of the assumptions that are made explicit in a DCF apprach and the risks are hidden in the selected yield.
Need to use comparable method of valuation to decide the yield.
What are the different types of yields?
- All risks
- True
- Nominal
- Gross
- Net
- Equiv
- Inital
- Reversionary
- Running
What is a all risks yield?
The remunerative rate of interest used in the valuation of fully let prperty let at market rent reflecting all the prospects and risks attached to the particular investment
What is a true yield?
Assumes rent is paid in advance and not in arrears (traditional valuation practice assumes rent is paid in arrears)
What is a nominal yield?
Initial yiled assuming rent is paid in arrears
What is a gross yield?
The yield not adjusted for purchasers costs (such as auction result)
What is a net yield?
resulting yield adjusted for purchasers costs
What is a equivalent yield?
Time weighted average when a reveriosnary property is valued using an inital and reversionary yield
What is a initial yield?
Simple income yield for current income and current price
What is a reversionary yield?
MR divided by current price on an investment
What is a running yield?
The yield at one moment in time
